Staff Research

How has the Euro performed? The 2017 optimality index

Are the economies of the Eurozone countries more homogeneous today than in 1999?

We have collected 10 different economic indicators per country to measure how homogeneous or asymmetric the Eurozone Member States' economies are, and calculated an overall index of economic dispersion. This index can be interpreted as a measure of macro¬economic dispersion and thus of the asymmetries existing within the Eurozone.

What the index tells us is that, overall, the economies of the Eurozone Member States are less homogeneous today than in 1999.

Since 2015 the index had shown a slight recovery: the new fiscal measures adopted, along with the adjustment in costs and prices in those Member States mostly affected by the crises, seemed to have been effective. In addition, the programme of Quantitative Easing by the ECB, which began in 2014, had also helped, by reducing monetary growth dispersion across the Member States.

However, this positive trend has been reversed in 2017, due to a deterioration in the competitiveness and monetary dispersion indices. This raises concerns about the stability of the Eurozone, since it shows that the return to macroeconomic stability and integration to something like pre-crisis levels is not an easy task even in times of economic growth. It also shows that the changes introduced in the euro architecture during the crisis have not been as effective as hoped.

Reflections on Monetarism by Professor Tim Congdon

This collection of articles and papers was first published in 1992. Its objective was to add insights to the analysis of British economic policy in a particularly interesting period. Between the mid-1970s and late 1980s the main theme of British macroeconomic management was the attempt to establish an efficient framework of monetary control. For much of the period this framework was provided by a target for the growth of the money supply (broadly defined, to include bank deposits). The rational was simple: if excessive monetary growth caused inflation, targeted reductions in the rate of monetary growth would stop it.

The ideas behind the policy framework were known as "monetarism". Since the publication of this book, monetarism has fallen out of favour. particularly in academia. Professor Congdon has nonetheless remained convinced that controlling the money supply remains the key to stable, macroeconomic growth. A full 25 years later, the articles and papers contained in this book thus remain as relevant as ever.

This book is available as a pdf which can be accessed here or else you can access the publisher's website and download all or part of the book by clicking on the image on the left.

Keynes, the Keynesians and Monetarism by Professor Tim Congdon

This book follows on from "Reflections on Monetarism" (See above) and is a series of essays relating to the debate between monetarists and Keynesians, including the reputation of Keynes himself and how the two schools of thought have quarrelled about his legacy.

The debate between the two schools originated in the 1950s in the USA with the publications of a number of influential academic papers arguing that the quantity of money played an important role in the determination of national income. In the 1970s and 1980s, monetarist economists occupied highly influential positions in the UK and US governments, but in spite of the vindication of their position by the economic history in the early 1980s in particular, the debate is still far from over, especially given the dominance of Keynesianism in many UK universities - and indeed, in sections of the media.

This book can be downloaded in pdf format chapter by chapter from the publisher's website by clicking on the image on the left.

Money in the Great Recession

Edited by Professor Tim Congdon

In the book's introduction and first chapter Tim Congdon proposes that the Great Recession can be explained by a large fall in the rate of growth of the quantity of money, broadly-defined, which reflected developments in the banking system. In particular, he suggests that the regulatory demand for higher capital/asset ratios from September 2008 caused banks to shrink their risk assets and so led to the destruction of money balances. While banks undoubtedly had problems of their own making, officialdom's tightening of regulation was mistimed and inappropriate, and had "vicious deflationary consequences at just the wrong point in the business cycle". The Great Recession could have been avoided if quantitative easing (to boost the quantity of money), rather than the increase in capital ratios, had been pursued earlier.

The book features contributions from nine authors in total, taking different perspectives on the Great Recession

For a review of this book, by Nick Ronalds in Enterprising Investor, please click here.

For a review by Michael Reddell in Central Banking, please click here.

This article forms Chapter 5 of Central Banks at a crossroads - What can we learn from history? edited by Michael D. Bordo, Øyvind Eitrheim, Marc Flandreau and Jan F. Qvigstad

We conduct an empirical analysis of eight economies covering more than a century and find that independent central banks tend to be more durable in their independence in small open economies than in large economies. This is because the former have the option of being, and often are high trust societies, which allows the writing of simple, and therefore less affected by shocks, central bank contracts, and as Milton Friedman argued many years ago in his pioneering discussion of central bank independence, central banks need a set of instructions and that takes the form of a contract.

You can listen to Dr Castaneda discussing it in the video below:-

European Banking Union- Prospects and challenges

Edited by Juan E. Castañeda, David G. Mayes, Geoffrey Wood

Recent failures and rescues of large banks have resulted in colossal costs to society. In wake of such turmoil a new banking union must enable better supervision, pre-emptive coordinated action and taxpayer protection. While these aims are meritorious they will be difficult to achieve. This book explores the potential of a new banking union in Europe.

This book brings together leading experts to analyse the challenges of banking in the European Union. While not all contributors agree, the constructive criticism provided in this book will help ensure that a new banking union will mature into a stable yet vibrant financial system that encourages the growth of economic activity and the efficient allocation of resources.

This book will be of use to researchers interested in Banking, Monetary Economics and the European Union. You can listen to Dr Castaneda discussing it in the video below:-

Banking and finance in the early years of the United States of America were chaotic. Two of the founding fathers - Thomas Jefferson and James Madison - were hostile to banking, since the issue of paper money led to inflation and default. According to Jefferson,

"...banking establishments are more dangerous than standing armies"

The Great Recession of 2008 - 09 renewed concern about the potential role of the banking system in social and financial instability, and argued for more research and analysis about this critical topic.

Mission Statement

The purpose of the Institute of International Monetary Research is to demonstrate and bring to public attention the strong relationship between the quantity of money on the one hand, and the levels of national income and expenditure on the other.

The Institute is heavily involved in the analysis of banking systems, particularly their role in the creation of new money balances. The relationships between money and national income/expenditure hold in all countries over long periods, and the Institute's research covers many countries. The "quantity theory of money" could be characterized as an "always-and-everywhere theory".

The Institute - which is associated with the University of Buckingham in England - was set up in 2014, in the aftermath of the Great Financial Crisis (a.k.a., "the Great Recession") of 2007 - 2009. It is an educational charity.

and their impact on the world's leading economies

Institute of International Monetary Research
c/o University of Buckingham
Hunter Street
Buckingham
MK18 1EG

The great economist, John Maynard Keynes, said in his celebrated 1923 Tract on Monetary Reform, that changes in the value of money 'have produced in the past, and are producing now, the vastest social consequences, because, when the value of money changes, it does not change equally for all persons and for all purposes...[I]nflation and deflation alike...has inflicted great injuries'.

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